Couche-Tard Takes Hostile Bid to Casey’s Shareholders

Under CEO Alain Bouchard, Alimentation Couche-Tard has grown to be one of the largest convenience store operators in world. The Laval, Quebec-based chain today took its boldest step to date when it commenced an all-cash offer to acquire Casey’s General Stores, the Iowa chain currently operating 1,513 stores throughout the Midwest.

If successful, the tender offer for $36 per share would boost Couche-Tard’s store count in North America to more than 7,400 stores.

In an interview with Convenience Store Decisions, Bouchard said he believes that a combination of Casey’s and Couche-Tard is compelling because it would deliver superior value to their respective shareholders, employees and business partners.

“We have great respect for Casey’s and the network they have created,” Bouchard said. “This acquisition would enhance our scale. Combined, the companies would benefit from great leadership and enjoy new prospects that were previously unavailable to us individually.”

Bouchard also said it remains his preference to enter into a negotiated transaction with Casey’s. “It is unfortunate that the Casey’s board has rejected our all-cash offer without any discussion or negotiation,” he added. “We are committed to making this combination a reality and, to that end, are taking our offer directly to the shareholders of Casey’s. We are confident that the shareholders will recognize the seriousness of our interest and send a strong message to the rest of the Casey’s board that they should sit down with us immediately to negotiate a mutually acceptable transaction.”

While the tender offer expires July 9, officials at Casey’s released a statement urging shareholders not to take any action” on the offer, saying the board would “review the tender offer and make a recommendation to shareholders within 10 business days.”

A Good FitCouche-Tard is managed through a decentralized management structure, which includes nine regional offices in the U.S. and Canada, each run by what Bouchard calls “CEOs,” that have full decision-making power and support from the parent company. As such, its Circle K brand throughout the U.S. operates independently by region, but under the umbrella of corporate guidelines. Brian Hannasch chief operating officer for Couche-Tard, said Circle K does not have a strong presence in the Midwest markets where and Casey’s operates. As a result, Casey’s would effectively become a new independent operating unit of Couche-Tard.

Bouchard told CSD none of the Casey’s units would be rebranded.

“In some markets like Indiana, where there is some overlap with our Circle K brand, we would have to reconcile the brands,” Hannasch told CSD.

Those decisions have not been made, but Couche-Tard did say it did have a plan in place to select the management team that would ultimately be responsible for making those decisions.

According to Bouchard, if Casey’s does decide to enter into a merger agreement, he would nominate and solicit proxies for the election of nine independent directors of a new board of directors to oversee Casey’s operations.

A History of DealingCouche-Tard is widely considered the main consolidator in the North American c-store market and its methodology doesn’t vary. “We adhere to a disciplined program to buy strategically and well, to integrate new assets effectively and to rapidly pay down any debt encountered in the process,” Bouchard said.

Just as important is Couche-Tard’s commitment to retail operations. Over the past five years, the company has invested heavily in its retail network as part of its IMPACT (or Innovation Marketing Personnel Alimentation Couche-Tard) retail program, to place more of an emphasis on fresh foods, new products and store marketing, the price tag for which will surely stretch north of $100 million.

“Our brand is something we have worked hard on building,” Bouchard said. “A big part of the brand we have built is our relationship with the customers and our employees.”

To understand Couche-Tard is to understand how to grow a retail business successfully through smart, timely acquisitions. Bouchard started Couche-Tard with one store in 1980. In 1986, with a network of 34 stores, a predecessor of Couche-Tard completed an initial public offering and listed its shares on the Montreal Exchange. After establishing a leading position in Quebec, Couche-Tard expanded through internal growth and acquisitions in Ontario and Western Canada in 1997. In May 1997, Couche-Tard acquired from Provigo Inc. 245 Provi-Soir stores in Quebec and 50 Wink’s stores in Ontario and Western Canada.

In April 1999, Couche-Tard acquired 980 stores in Ontario and Western Canada operating under the Mac’s, Mike’s Mart and Becker’s banners through the acquisition of Silcorp Limited. Beginning in 2001, Couche-Tard moved into the U.S. market. In June 2001, the company completed its first U.S. acquisition when it purchased 172 stores under the Bigfoot banner in Indiana, Illinois and Kentucky. In August 2002, Couche-Tard acquired 287 stores from Dairy Mart, also located in the Midwest.

The following year in December 2003, Couche-Tard made its biggest splash in the U.S. market, acquiring the Circle K brand, this included 1,663 Circle K stores in 16 states and an additional 616 franchised and licensed units. The chain was recognized as Convenience Store Decisions’ 2007 Chain of the Year. Casey’s also was honored as a Chain of the Year in 1993.

Inside the Numbers:Alimentation Couche-Tard’s tender offer of $36 per share is aimed at acquiring all of the outstanding shares of common stock of Casey’s General Stores. Couche-Tard’s all-cash offer represents a 14% premium over the closing price of $31.59 per share of Casey’s on April 8, 2010, the last trading day prior to the public disclosure of Couche-Tard’s proposal, a 17% premium over the 90-calendar day average closing share price of Casey’s as of April 8, 2010, and a 24% premium over the one-year average closing share price of Casey’s as of April 8, 2010. The offer also implies a last twelve months (as of January 31, 2010) EBITDA multiple of 7.4 and a price of $1.3 million per store, which compares favorably to corresponding metrics of publicly-traded companies and precedent transactions in the convenience store industry. The transaction has a total enterprise value of approximately $1.9 billion on a fully diluted basis, including net debt of Casey’s of approximately $29 million.

Couche-Tard currently operates a network of 5,883 convenience stores, 4,142 of which sell fuel, covering 43 states and the District of Columbia and all 10 Canadian provinces. More than 53,000 people are employed throughout Couche-Tard’s retail convenience network and service centers.

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